Alphametry has put together a collection of articles to keep you up-to-date with the latest developments in research unbundling from your sun lounger.
We’re already halfway through 2018, plus six months into MiFID II, and research unbundling has been the catalyst for significant transformation across the industry.
New rules, economics, players and the growing role of technology are already paving the way to a new investment research industry. In this brave new world, who will emerge victorious – it’s becoming patently clear that not everyone will be crossing the finish line in the race for innovation.
Active managers are feeling the heat.
Years of underperformance are putting intense pressure on their business model. Risk premia strategies, robot-advisors, systematic funds and alternative data usage are gradually disturbing the quiet territory of discretionary investing: a reminder, if it were needed, of the unimpressed view of the FCA regulator in recent asset management industry surveys. In short, active management is going through an existential crisis.
And things might get even uglier. Artificial Intelligence and its sub-components including Machine Learning, Deep Learning, Natural Language Processing, and the list goes on, are threatening to eradicate any form of human decision-making in investment. It is only a matter of time. The almighty portfolio manager is dead. Vive les machines!
Just over two months ago we entered a new era of financial reporting under MiFID II. The new legislation, which came into force on 3 January, was designed to make financial markets more efficient, resilient and transparent. It included the requirement to unbundle investment research from execution, a fundamental change to how the research market operates. Under the new regime, research must now be paid for separately by asset managers breaking from the traditional model whereby much of it has appeared to be provided free of charge, or at least bundled in with other costs such as trading commissions.
“Sell by” and “use by” dates, found on all food items in our supermarkets, have made the headlines recently as many believe that the dates are overly cautious, and as a result too much food is being thrown away. In a similar way, investment research deemed no longer current is consigned to the virtual wastepaper bin, but does it too still have a useful shelf-life?
The advent of MIFID II, with research unbundling and regulated trial periods, means that if handled correctly, recently out-of-date research can be used as first, easy step to making intelligent purchasing decisions.